paying cash vs a high interest rate

[notasailor23]

My husband will be returning from deployment very soon and we will have to purchase a second car. Neither of us has been very financially responsible up until this point, but have started to really take control of our finances. He deployed in February and we have saved about $2,000. (Could have been more, but the restaurant I was bartending at went under in May and my new job hardly pays peanuts).

We are currently weighing the options between purchasing an older car through a private party for less than $1500 versus purchasing a cheap car from a small dealership (thinking less than $5,000) and taking on a car payment. We will be able to get approved somewhere, since he is military, but we will be gouged on the interest rate. Purchasing a car for cash is going to greatly deplete our savings, and we plan on moving in September so a savings is going to be necessary.

Any thoughts?

[llecs]

Remove savings from your mind because either way you would end up using that money. If you finance a car and your FICOs aren't high, you would have to put a large chunk down as a down payment, especially if you are buying used. And if you buy a car with cash then you'll need the same money. My vote is to buy a car now with cash and that'll free up your cash flow for when you move later. If your FICOs are low and if you finance, your interest payments alone would be well over a thousand anyway in the course of the loan. Pay cash now and you will save a lot of money.

[grassfeeder]

purchase the car with cash and treat your savings account as the bank and make that montly "car payment" to yourself each month to build up your savings to pre-car levels.

[StartingOver10]

No question about it - pay cash for your car now and work on your credit. It will save you a lot of heartache and money too.

[Hoya08]

Besides the above options of purchasing the car via cash, have you looked at purchasing with a personal-loan or credit-card, assuming you can obtain better rates than the auto-rates?

PS.  I purchased my first motorized-vehicle, a motorcycle, at 21 with a non-existent credit history, with a 7% APR credit-card.

[coterotie]

Kill 2 birds with one stone.  Pay cash for the relatives car, then go to the Credit union and get a secured loan for the same amount.  You will have forced yourself to save, as once you pay off the loan you will be left with the savings.  You will have an instalment loan on your bureau which will help your score.  Worst case scenario, you can sell the car to pay off the loan or just use the savings account to pay it off. 

[StartingOver10]

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@Hoya08 wrote:

Besides the above options of purchasing the car via cash, have you looked at purchasing with a personal-loan or credit-card, assuming you can obtain better rates than the auto-rates?

PS.  I purchased my first motorized-vehicle, a motorcycle, at 21 with a non-existent credit history, with a 7% APR credit-card.

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This option is not available for most people that have credit issues. They won't have low interest credit cards available generally. Besides, it is a really bad idea if the loan is any thing that takes a while to pay off because the credit card company has the ablity to increase the rate with very little notice.  You are at the mercy of the credit card issuer.

Better to pay cash or do the installment loan discussed by another poster so the rate doesn't change during the pay off period.